Kristen Verga September 19, 2023

Newsletter - September 2023

Credit card balances and interest rates are soaring as Americans continue to grapple with inflation. Credit card debt has exceeded $1 trillion for the first time according to the New York Federal Reserve, and there are also more credit card accounts open now than in 2019.

With the rise in cost of essentials, like rent, groceries, and gas, more families are being forced to turn to credit cards and aren’t able to make their payments. This year, credit card delinquencies have hit 3.8% and 3.6% have defaulted on their car loans Equifax said. These figures are the highest they have been in 10 years.

Yet utilizing credit cards to cover important purchases is not the wisest option now since interest rates hit a record high of 20.6% reported. The high fees and interest rates are really just compounding the problem and making the financial crisis far more difficult for people to climb out of. Furthermore, the issues may get worse this fall experts say.

Credit card delinquencies will continue to rise in the second half of the year,” Neil Saunders, managing director of retail at GlobalData said. “On top of rising interest rates and student loan repayments, higher energy and electricity bills in the fall and winter will add to some consumers’ debt loads. And that is before you even factor in the general cost of the holidays, which no one really wants to scrimp on. So I think there are some real pressures building there for the consumer.”


Macy’s confirmed that store card delinquency rates have increased, and Chief Operating Officer Adrian Mitchell mentioned in August the occurrences were “faster than planned.”


Student loans are also making a comeback this fall since the Covid-induced pause is being lifted in October. Although the entire economy may not be in crucial trouble, it’s the lower-income families that are really in a pinch. They are leaning on credit cards just to get by.

Post pandemic revenge spending is also a factor since consumers continue to chase after goods and experiences they could not enjoy during lockdowns. Now they are trying out “buy now pay later” services that could result in delinquency on accounts. Adobe Analytics reported that usage surged 40% in the first two months of 2023.

The Washington Post said, “After inflation made everything more expensive, the interest rate increases enacted to fight those rising prices increased the cost of debt. With that combination, some consumers suddenly found themselves living beyond their means and unable to repay their debt.”

Take for example car loans – consumers have to pay more for a car today than they did before COVID. The average price of a new vehicle in July was about $48,300, up from $37,700 four years ago, according to Cox Automotive. The average used car listed for $27,000, up from $19,400 four years ago.

Even though the Federal Government’s interest rate hikes are having an effect on consumer spending, it may not be the effect that Americans will benefit from in the long run.

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